Moves by Brazil’s central bank this week, including a large cut in required reserve ratios, suggest that policymakers are increasingly concerned about the faltering economic recovery. Comments from Mexico’s Finance Minister suggest that the government remains overly optimistic regarding the economy’s prospects this year; we think growth will fall short of his – and even the more downbeat consensus – expectation. Finally, the belated acknowledgement by the IMF on Wednesday that Argentina’s debt is unsustainable has reinforced our view that large haircuts on sovereign bonds are on the cards.
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